-
Building Fundamentals®
-
Important Questions
How much do you know about
Freeport-McMoRan Corporation’s
Key Success Measures?
Let’s find out!
Pop Quiz
(Write your answers on Page 8-9)
For fiscal year:
2010
1 - How much Cash was on hand?
$______
2 - How much Cash was generated by Operating Activities?
$______
3 - What was our Total Revenues?
$______
4 - What was our Operating Margin?
______%
5 - What was our Net Margin?
______%
6 – What was our Copper Reserves (billion lbs.)?
______
7 – What was our total equity ratio?
______%
8 - How much did Total Revenue change YOY?
______%
9 - How much did Net Income change YOY?
______%
10 - How much did Earnings Per Share (EPS) change YOY?
______%
11- What was FCX’s Total recordable incident rate (TRIR)?
______
12- Where would you go to get access to this information?
______
-
Group Activity
What’s your knowledge of Business
terminology?
Let’s find out!
Group Activity!
(Write your answers on Page 10-11)
Its OK to guess!
The bills and coins in the register, petty cash, and cash in the bank. It also includes cash equivalents, like CD’s and other highly liquid
investments, easily converted into cash within 90 days.
1. _____
Cash generation that is the difference between the cash that flows into the business and the cash that flows out of the business in a given
period of time (month, quarter, annual)
2. _____
The total dollar payment received for goods & services during a specific period of time. It is the “top line” figure from which costs are
subtracted to determine net income. Also synonymous with sales.
3. _____
The amount of profit realized from a business’s operations after taking out operating expenses such as costs of goods sold (COGS), SG&A,
and depreciation. Also known as EBIT.
4. _____
A company's total earnings and is calculated by taking revenues and subtracting “all” expenses. This number is found on a company's
income statement and is an important measure of how profitable the company is over a period of time. Often referred to as "the bottom
line“.
5. _____
Amount of proven and probable copper available to be pulled out of our mining assets.
6. _____
A number used to help determine how much shareholders would receive in the event of a company-wide liquidation. The number is
expressed as a percentage, is calculated by dividing total shareholders' equity by total assets of the firm, and it represents the amount of
assets on which shareholders have a residual claim. The figures are taken from the company's balance sheet.
7. _____
An increase of a company's sales when compared to a previous month, quarter or year's revenue performance.
8. _____
An increase of a company’s net earnings compared to a previous month, quarter or year.
9. _____
The portion of a company's profit allocated to each outstanding share of common stock. Calculated as: Net Income – Dividends on
Preferred Stock / Average Outstanding Shares.
10. _____
Rate of recordable workplace injuries, normalized per 200,000 hours worked.
11. _____
A. Revenue Growth
F. Operating Income
K. Net Income Growth
B. Cash Flow
G. Revenue
L. Cooper Reserves
C. Growth
H. Net Income
M. Asset
D. Cash
I. Equity Ratio
N. Liquidity
E. TRIR
J. EBITDA
O. EPS
Learning Objectives
-
 Accurately define pertinent business and financial terminology such as
revenue, cost of goods sold, gross profit, net income, unit costs, etc.
 Demonstrate in a team setting, an understanding of the 5 key drivers
(cash, profit, assets, growth, people), that every business must focus on
and how each driver influences business success.
 Accurately describe the key measures and metrics used to assess
business performance.
 Identify and define each line item on a Basic Profit & Loss statement.
 Articulate to one’s team the importance of business and financial
acumen and how their individual role impacts the business.
-
Business Can Be Tough!
 Only 5-10% of business start-ups survive past 5 years.
 16% of CEOs lose their job every year.
Booz Allen Hamilton 5th annual Study
 70% of merger and acquisition activity do not live
up to expectation.
Wall Street Journal 2007
Why do businesses fail?
-
Introduction to the 5 Drivers
Every business must
focus on five business
drivers.
 If they do, they will be
successful.
 If they don’t, they’ll fail.
Let’s Start a Business!
7
-
Sources of Cash
• Earn it
•Cash from Operation
• Sell Assets
Pro: No Cost
-Con: Time
Pro: Immediate -Con: Reduces Assets
•Cash from Investing
• Borrow it
Pro: Immediate -Con: Cost (Interest)
•Cash from Financing
Can a company have too much cash?
13
Challenges of Too Much Cash
Cash
-
Can a company have too much Cash?
1)
2)
3)
4)
More attractive in a buy-out.
Low return.
Shareholders don’t like it.
May make poor decisions.
13
-
Cash: Definition
DEFINITION:
What is required to Grow and Maintain
the business.
®
HOW MUCH CASH SHOULD A COMPANY HAVE?
“Companies ought to keep just enough cash to cover their
o Operational expenses
o Interest expenses
o Capital expenditures
o ….plus a little bit more in case of emergencies.”
~Investopedia
Fred Smith - FedEx
12
Cash: Measures
-
KEY MEASURES
Cash (Cash position):
“The bills and coins in the register, petty
cash, and cash in the bank. It also
includes cash equivalents, like CD’s and
other highly liquid investments, that is
easily converted into cash within 90
days.”
Cash Flow:
“Cash generation or “cash flow” is the
difference between the cash that flows into
the business and the cash that flows out of
the business in a given period of time (month,
quarter, annual)”
12
Cash: Related Terms
-
Cash generation or Cash from Operations refers to cash flow. Core
operations or operating activities means the primary activities we perform
in our business.
What are our core operating activities?
 Cash generated from operations activities
 Cash generated from investing activities
 Cash from financing activities
 Cash management
 Liquidity
 Cash Equivalents
13
Cash: Where Measured
Balance Sheet - Entry:
Cash and Cash Equivalents (some companies add short-term and long-term
investments/securities when considering their Cash Position.
Statement of Cash Flows – Entry:
From Operations, or Cash Generated from Operations.
-
-
Cash: Insights & Importance
Cash is King!
“Cash is a company’s oxygen supply.”
-Ram Charan
“Cash is more important than your mother."
Al Shugart Former Seagate CEO
What happens to a company who runs low on cash?
-
Cash
Freeport McMoRan Corporation
(In Millions)
Freeport
McMoRanFCX
Freeport
McMoRanFCX
Freeport
McMoRanFCX
Freeport
McMoRanFCX
2010
2009
2008
2007
$18,982
$15,040
$17,796
$16,939
Cash and Equivalents
$3,738
$2,656
$872
$1,626
Cash from Operating Activities
$6,273
$4,397
$3,370
$6,225
Business Measures and Metrics
Revenues
Cash
13
-
High Cash vs. Low Cash
High Cash % of Revenue
Low Cash % of Revenue
75%
2.0%
42%
1.8%
32%
1.7%
WHY?
WHY?
• Acquisitions
• Long sales cycle
• High risk industries (pharma, tech)
• They sell commodities
• Short sales cycle
• Predictable business model
S&P 500 Average: Cash = 14%
13
-
Cash
Examples
(In Millions)
High Cash
Low Cash
Freeport
McMoRan-FCX
Microsoft
Pfizer
ExxonMobil
Wal-mart
2010
6/30/2011
2010
2010
1/31/2011
Revenues
Cash
Cash and Equivalents
$18,982
$69,943
$67,809
$383,221
$421,849
$3,738
$52,772
$28,479
7,827
7,395
Cash as % of Revenue
Cash from Operating
Activities
19.69%
75.45%
42.00%
2.04%
1.75%
$6,273
$26,994
$11,454
$48,413
$23,643
Business Measures and
Metrics
S&P 500 Average: Cash = 14%
13
Key Ways to Increase Cash & Cash Flow
-
To increase CASH:
 Paying slower
 Collecting faster
… with the same sales revenues and costs.
To increase CASH and CASH FLOW:
 Increase revenues/sales
 Reduce/cut costs
 Adjust inventories
13
Action Plan:
-
What Single Action are You Committed to do to
Positively Impact CASH and CASH FLOW?
Review:
CASH:





•
•
•
•
•
•
•
•
Increase Profits by increasing sale and/or reducing costs (next
section)
Pay slower/JIT: (to Vendors strategies – A/P)
Collect faster (from customers strategies – A/R)
Manage inventory levels
Scrutinize capital expenditures
Increase sales/revenues
Compress A/R – Extend A/P
Increase operational efficiencies
Control expenses
Reduce waste, re-work
Manage/Reduce OT
Maintain schedule/ship dates
Vendor owned/Managed inventory
• Better training/faster ramp up
• Increase employee/customer retention
• Have clear policies & procedures that will
enable better efficiencies
• Reduce/conserve utilities
• Reduce conflicts (systems, people, processes, IT
technologies)
 Your own idea…
3
8
-
Profit: Definition
DEFINITION:
®
The money made after all expenses are
subtracted from your sales. It can be
expressed in dollars ($) or as a percent (%).
You can improve profit in two fundamental
ways:
1) Increase Sales Price (Revenues)
1) Reduce Expenses
14
-
Profit: Measures
KEY MEASURES
Gross Profit/Margin:
Total Revenues (Sales) less Cost of Goods
Sold.
Operating Profit/ Margin:
Reflects earnings before interest and taxes.
®
Net Profit/Net Profit Margin:
Profit after all expenses have been
subtracted from sales.
Earnings Per Share (EPS):
Profit allocated to each outstanding share
of Common Stock.
14
Difference Between Profit ($) & Margin (%)
Sales Price:
Water
Label
Bottle & cap
Packaging
Total:
$1.50
- .04
- .11
- .15
- .20
COGS
 Direct Labor
( .50)
$1.50 - .50 =
$1.00 Gross Profit 66.7% Gross Margin
Rent
- .03
Salaries, Gen, Admin. (SG&A)
- .30
Marketing
- .08
Shipping
- .19
Depreciation /Amortization
- .02
Total:
( .62)
$1.50 - $.50 - $.62 =
Interest Expense
Taxes
Total:
-
Controllables
$.38 EBIT (Operating Income)
- .04
Less-Controllables
- .06
( .10)
$1.50 - $.50 - $.62 - $.10 =
25.3% Margin
$.28 Net Profit
18.6% Net Profit Margin
Life
Spring
Artesian Water
Profit: Related Terms
-
 Profit = Earnings = Income
 Gross profit, gross margin, gross income:
Sales from core operations less direct costs associated with
those sales (before deducting overhead or indirect costs).
 Net profit, net margin, net income:
Total sales/revenue less all expenses.
All these terms represent what is left over after certain
categories of expense are deducted from revenue.
15
Profit: Where Measured
-
Consolidated Statement of Operations:
Also referred to informally as the Profit and Loss Statement or P&L. Profit
(earnings) is usually measured in dollars. Margin is frequently stated as a
percent of sales (as in, “6% Profit Margin”) meaning Profit is 6% of
Sales/Revenues.
15
-
Profit: Insights & Importance
“Every business must earn a return that
is greater than the cost of using other
people’s money.”
~Ram Charan
“No Margin, No Mission.”
~Stephen R. Covey
15
Profit
Freeport McMoRan
Corporation
-
(In Millions)
Freeport
McMoRanFCX
Freeport
McMoRanFCX
Freeport
McMoRanFCX
Freeport
McMoRanFCX
2010
2009
2008
2007
Revenues
$18,982
$15,040
$17,796
$16,939
Net Income
$4,273
$2,527
$(11,341)
$2,769
Operating Margin
47.8%
43.2%
-71.4%
38.7%
Net Margin
22.5%
16.8%
-63.7%
16.3%
Unit Cash Cost Copper (per lbs.)
EPS
$0.79
$0.55
$1.16
$1.31
$4.57
$2.93
$(14.86)
$3.75
Business Measures and Metrics
Profit
11
-
High Margin vs. Low Margin
High Margins
Low Margins
32%
8.0%
28%
3.6%
22%
1.7%
WHY?
WHY?
They offer something Unique!
They sell commodities.
“If you’re not unique, you better be cheap!”
S&P 500 2011 Averages: Net Margin = 13%
To drive Profit($) you need either: High Margin (%) or High Volume
15
-
Profit
Examples
(In Millions)
High Profit
Low Profit
Freeport
McMoRan-FCX
Coca-Cola
Microsoft
ExxonMobil
Wal-mart
2010
6/30/2011
2010
2010
1/31/2011
Revenues
Profit
Operating Margin
$18,982
$35,119
$69,943
$383,221
$421,849
47.8%
24.1%
38.8%
13.8%
6.1%
Net Margin
22.5%
33.6%
33.1%
7.9%
3.9%
Business Measures and
Metrics
9
Profit in Action
-
United Parcel Services (UPS) – Avoiding left-hand turns
-92,000 trucks worldwide
-Saved over 28,541,472 miles
-Saved 3 million gallons of fuel
-Reduced insurance premiums
-Reduced maintenance frequency
and costs
11
-
Action Planning:
(Personal action plan - page 11)
What Single Action are You Committed to do to
Positively Impact PROFIT?
• Increase product sales prices
• Increase company sales
• Increase accessory sales (higher margin
sales)
• Reduce/eliminate color copies
• Reduce expenses
• Decrease utilities
• Decrease equipment returns
• Decrease equipment replacement
• Decrease discounting
• Decrease credits
• Effective management of operational costs
• Educate employees on company products to
enhance up-selling and cross-selling
• Manage/Reduce OCC’s (Other Credits & Charges)
• Decrease delinquent customers
• Book flights 4 wks in advance
• Faster on-boarding
• Reduce 0 – 12 month turnover ($24,000)
• Reduce overall company turnover
• Effective training
3
8
-
Assets: Definition
DEFINITION
What we have and how well we use what
we have.
®
Asset Strength:
The ability to remain viable during ups
and downs in the marketplace.
Asset Utilization:
The ability to remain viable during ups
and downs in the marketplace.
16
-
Asset: Measures
KEY MEASURES
Copper Reserves (Billion Lbs.)
total estimated proven and
probable copper reserves remaining
Equity Ratio:
indicates what proportion of
equity and debt the company is
using to finance its assets
Asset Strength
(Have)
Asset Utilization
(Use)
• People:
Increase employee
productivity.
• Property:
increase usage with
lower number of
buildings.
• Cash:
Buy back stock, acquire
another company, invest
in higher returns.
• Inventory:
“just in time” inventory
increasing inventory
turnover.
• Plant &
Equipment:
Decrease cycle time.
• Information:
Increase number of
patents per year.
17
-
Assets: Related Terms
 Assets:
Resources, investments, property.
 Asset Strength:
Liquidity, risk, measurement, risk profile.
 Asset Utilization:
Efficiency, effectiveness, operations, return on investment, return
on assets, return on equity, return on investment, sales per
employee, income per employee, worker productivity, process
efficiency, process improvement.
ROA = Net Income
Total Assets
Inventory Turnover =
Sales
Inventory
17
Assets: Where Measured
-
Balance Sheet - Entry:
Current assets, and other (long-term) assets, Measurements include current ratio,
quick ratio, debt-to-equity ratio, and others ratios and their trends, return on assets
(ROA), return on equity (ROE), and return on investment (ROI).
17
Assets: Insights & Importance
-
 Assets are what the company has to work with to generate
revenue. Asset Utilization is directly related to profitability.
 Leaders must balance Asset Strength with Asset Utilization.
Asset Strength
(Have)
• Solid base of
liquidity
• Low debt
• High capital
• Low risk
Asset Utilization
(Use)
Efficiencies/Productivity
• Higher Inventory
Turnover
• Higher ROA (Return
on Assets)
17
-
Assets
Freeport McMoRan
Corporation
(In Millions)
Business Measures and Metrics
Freeport
McMoRan-FCX
Freeport
Freeport
Freeport
McMoRan-FCX McMoRan-FCX McMoRan-FCX
2010
2009
2008
2007
Revenues
$18,982
$15,040
$17,796
$16,939
Net Income
$4,273
$2,527
$(11,341)
$2,769
Copper Reserves (Billion lbs)
120.50
104.20
102.00
93.20
Equity Ratio
49.5%
41.4%
30.4%
44.8%
Assets
Equity Ratio = Total Equity
Total Assets
$14,560 =
49.5%
$29,386
Bought Phelps Dodge
17
-
Assets: High-Low ROA
(In Millions)
High ROA
Business Measures and
Metrics
Revenues
Assets
Return on Assets (ROA)
Low ROA
Freeport
McMoRan-FCX
Coach
RIMM
Proctor &
Gamble
Abbott Labs
2010
6/2/2011
2-26-2011
6-30-2011
2010
$18,982
$4,158
$19,907
$82,559
$35,166
14.8%
33.4%
26.5%
8.5%
7.8%
FCX ROA = Net Income
Total Assets
= 4,336
29,386
= 14.8%
-
Growth: Definition
DEFINITION
An increase over a period of time such as
year, quarter, or month. Growth is most
commonly measured by:
Sales
Profit
Earnings
Top-Line
Bottom-Line
Per-Share
There are two types of Growth:
®
1.
2.
Organic Growth:
Comes from a company’s existing business
Inorganic Growth:
Comes from a merger or an acquisition
“In today’s business world, no growth means
lagging behind in a world that grows every day…”
18
-
Growth: Measures
KEY MEASURES
Revenue Growth:
Increase in revenues/sales
Net Income Growth:
Increase in Net Income
EPS Growth:
Earnings per share increase
®
18
-
Growth: Related Terms
• Organic Growth: Growth that comes from company increase.
• Inorganic Growth:
Growth through acquisitions.
• Top Line Growth:
An increase is sales/revenues.
• Bottom Line Growth: An increase in net income, or profit.
• Other Terms: Merger & acquisition (M&A), expansion, business
development, customer base, number of employees, number of
offices, asset growth.
19
-
Growth: Where Measured
Any financial statement or other report can be used, by
comparing figures from one time frame to another time frame.
For example: Year over year, quarter over quarter, month over
month, etc.
26.2%
16.7%
16.1%
5.7%
19
Growth: Insights & Importance
Business in Rapid
Decline
• Best & brightest leave first
• Productivity goes down
• Morale goes down
• Costs are cut, which limits ability to grow,
and the company becomes less
profitable.
-
Business in Growth
Mode
• Attracts/Retains the best & brightest!
• Productivity goes up = more profit =
more cash = more ability to grow!
• Morale is typically higher.
• You have the ability to grow in your
career!
Growth
Freeport McMoRan Corporation
-
(In Millions)
Freeport
Freeport
Freeport
Freeport
Business Measures and Metrics McMoRan-FCX McMoRan-FCX McMoRan-FCX McMoRan-FCX
2010
2009
2008
2007
Revenues
$18,982
$15,040
$17,796
$16,939
Net Income
$4,273
$2,527
$(11,341)
$2,769
Revenue Growth
26.2%
-15.5%
5.1%
193.0%
Net Income Growth
69.1%
122.3%
-509.6%
98.4%
EPS Growth
Recorded Reserve Growth
Copper
56.0%
119.7%
-496.3%
11.8%
15.6%
2.2%
9.4%
72.2%
Growth
19
-
Growth: High-Low Revenue Growth
(In Millions)
High Revenue Growth
Business Measures and
Metrics
Revenues
Growth
Revenue Growth
Low Revenue Growth
Freeport
McMoRan-FCX
Apple
Amazon
Wal-mart
Yahoo!
2010
9-10/9-11
2010
2010
$18,982
$108,249
$34,204
2010
$421,849
$6,324
26.2%
65.9%
39.6%
3.4%
(2.1)
FCX Revenue Growth = 2010 Rev
2011 Rev
- 1 x 100 = 26.2%
-
Action Planning:
What Single Action are You Committed to
do to Positively Impact GROWTH?
GROWTH
= Increase: -Sales, and/or
-Profits, and/or
-Earnings per share (EPS) for public companies.
 Quarter over quarter, or year over year increases
 Organic growth: comes from a company’s existing business
 Inorganic growth: comes from merger and acquisitions.
•
•
•
•
•
•
•
•
Increase: customers, revenues,
and product offerings
Up sell product sales
Increase R2B sales
Reduce churn (retain customers!)
Increase subscribers/customers
Increase add-a-line sales
Sell value
Create customer loyalty
•
•
•
•
•
•
•
•
•
•
Increase global services
Increase network forecasting
Provide exceptional service (Int’l & Ext’l)
Increase open protocol
Invest in employees
Better utilize marketing utilization
Play a part in culture shaping and acquisition
integration
Hire talent that is strong and adaptable
Develop great leaders
Anticipate employee needs that will support a growth
strategy
3
8
People: Definition
-
People
Many great organizations have stumbled
because they failed to anticipate their
customers changing needs.
In a competitive world wide market place,
a company’s ability to innovate around
customers needs or to improve the
efficiency of core processes depends on
having the right people.
Keeping the right people requires having
the right leaders.
People:
 The “external customer” or
consumer of your product.
 The “internal customer” or
employees.
“Communicate a persons potential
so clearly that they are inspired to
see it within themselves.”
2
0
-
People:
What is more important than meeting customer expectations?
Exceeding?
Anticipating Customer Needs & Expectations!
“If I would have asked my customer what they wanted, they would have
said a faster horse!”
~Henry Ford
21
Anticipating External People
-
What companies have failed to anticipate customer
expectations? What were the results?
What limits companies from anticipating their customers’
wants and needs?
People: Measures
-
• There are no direct measures on financial statements.
Revenues on the P&L measure customer sales and
cost categories such as labor, measure associate
payroll expenses and benefits.
• Companies keep track separately of data on external
customers such as numbers of customers, patients,
members, or other consumer and users of products
and services; Customer satisfaction levels; turnover
rates of customers; and numbers of new customers
per period. Employees, or internal customers, are
measured by management as to their satisfaction
levels, turnover, productivity, etc.
21
People: Insights & Importance
-
• People are the most important part of any organization –
its most important “asset” or resource. People, through
making decision, govern, control or direct all other
resources.
• It is 3-5 times more expensive to obtain new external
Customers than to retain existing Customers.
• It is simply more expensive to replace an Employee with a
new hire than to retain and train, or redeploy, a current
employee.
• As desirable as it is to meet and/or exceed Customer
needs, it is better yet to anticipate those needs!
21
-
People
Freeport McMoRan Corporation
(In Millions)
Business Measures and Metrics
Freeport
Freeport
Freeport
Freeport
McMoRan-FCX McMoRan-FCX McMoRan-FCX McMoRan-FCX
2010
2009
2008
2007
Revenues
$18,982
$15,040
$17,796
$16,939
Net Income
$4,273
$2,527
$(11,341)
$2,769
0.65
0.74
1.25
1.18
People
Total Recordable Incident Rate
(TRIR-(Per 200K Man Hours
Worked)
Mine Safety & Health Admin TRIR Average:
2010= 2.53 2009= 2.61 2008= 3.14 2007= 3.30
21
-
People: High-Low Metrics
(In Millions)
High Revenue Growth
Low Revenue Growth
Freeport
McMoRan-FCX
Apple
Amazon
Wal-mart
Yahoo!
2010
9/2011
2010
2010
Revenues
$18,982
$108,249
$34,204
$6,324
Profit
People
Employees
Revenue Per Employee
Profit Per Employee
$4,336
$25,922
$1,152
2010
$421,849
$16,389
2,100,000
$200,880
$7,804
13,600
$465,000
$90,514
Business Measures and
Metrics
29,700
$639,124
$145,933
60,400
43,200
$1,792,201 $791,759
$429,172
$26,666
$1,231
-
Action Planning:
What Single Action are You Committed to do to
Positively Impact PEOPLE?
INTERNAL:
EXTERNAL:
•
•
•
•
•
•
•
•
•
•
• Listen with empathy to resolve unhappy customers
• Ensure equipment functionality before customer takes it
home
• Possess good product knowledge when selling
• Qualify each customer
• Better educate customers
• Set up customer phones
• Increase customer negotiations
• Increase customer awareness
• Accurately set customer expectations
Develop teams into leaders
Invest in employees
Develop a learning culture
Exceed deadlines
Be positive
Always follow through
Increase vision
Anticipate needs and expectations
Increase employee education
HR: Hire the best!
39
-
5 Business Drivers & Financial Statements
Cash
Growth
People
Assets
Statement of
Cash Flows
Profit
Balance
Sheet
Income
Statement
Financial Statements
The Annually Reported Financial Statements
• Statement of Cash Flows
•Statement of Income (P&L)
• Balance Sheet
1.
What is the basic equation for each statement?
2.
What is the purpose of the statement?
3.
What are the key numbers and how are they trending?
4.
How can you impact each statement?
-
-
Basic Statement of Income
Revenues (Sales)
(Millions)
$18,982
- Production & Delivery
$ 8,354
- Depreciation, Depletion, & Amort.
$ 1,036
= Gross Profit/Margin
$ 9,592
- Selling, General, & Admin. (SG&A)
$
381
- Exploration & Research
$
143
= Operating Margin
$ 9,068
-Interest & Other Expense
$
-Taxes
$ 2,983
= Net Income
$ 5,544
-N.I. attrib. to Noncontrolling interest/Div.
$ 1,271
= Net Income Attrib. FCX Com. Sto
$ 4,273
100%
51%
48%
556
29%
23%
Equation:
Indicates:
P&L
Revenues
– Expenses
= Income
Profitability
SG&A:
(Revenue = Sales)
= Top Line
26%
19%
2%
Gross margin = 51%
COGS
(SG&A)
= EBIT
Operating margin = 48%
16%
19%
59%
• Salaries
•Sales commissions
•Benefits/Severance
• Rental Expense
• Bad debt charges
• Merger integration costs
• Professional services:
Attorney fees, Accounting
Operating Margin
Total Revenue:
18,982
Operating Expense: - 9,914
= 9,068
÷ 18,982
16%
= 47.76%
Net Profit Margin
Net profit margin
= 23%
= Bottom Line
Net Income:
4,273
Total Revenue:
÷ 18,982
= 22.5%
69%
S&P 500 Ave. = 11%
Impairment Charges
-
• During fourth-quarter 2008, we evaluated the
carrying values of our long-lived assets, including
goodwill associated with the acquisition of Phelps
Dodge, for impairment.
• These evaluations resulted in the recognition of
impairment charges of $10.9 billion associated
with long-lived assets and $6.0 billion associated
with goodwill.
Refer to Notes 2 and 7 and “Critical Accounting Estimates – Asset Impairments” for further discussion of these impairment
charges (pg. 65, 2008 10-K)
-
Statement of Operations (P&L)
Increase revenue by 100K
100K
44K
5K
49K
49K
51K
51K
18K
33K
7K
26K
-
Statement of Operations (P&L)
Lower costs by 100K
100K
100K
100K
100K
100K
35K
65K
22K
43K
Which has a greater impact?
Raising Revenues $100M = $26
-orCutting Costs by $100M = $43
What are the implications of each
action?
-
Financial Statements
Freeport McMoRan Financial Statements
The Annually Reported Financial Statements
• Statement of Income (P&L)
• Balance Sheet
• Statement of Cash Flows
1.
What is the basic equation for each statement?
2.
What is the purpose of the statement?
3.
What are the key numbers and how are they trending?
4.
How can you impact each statement?
-
Indicates:
Equation:
Financial (asset) Strength
Assets = Liabilities + Equity
Most Liquid
Snapshot in time
Becomes Cash < 1 year
Least Liquid
Due First
Current Ratio
= 2.6
Due in < 1 year
Due Last
Equity Position: 50%
Balance
Group Activity!
(Write your answers on Page 10-11)
Its OK to guess!
D
The bills and coins in the register, petty cash, and cash in the bank. It also includes cash equivalents, like CD’s and other highly liquid
investments, easily converted into cash within 90 days.
1. _____
Cash generation that is the difference between the cash that flows into the business and the cash that flows out of the business in a given
period of time (month, quarter, annual)
2. _____
The total dollar payment received for goods & services during a specific period of time. It is the “top line” figure from which costs are
subtracted to determine net income. Also synonymous with sales.
3. _____
The amount of profit realized from a business’s operations after taking out operating expenses such as costs of goods sold (COGS), SG&A,
and depreciation. Also known as EBIT.
4. _____
A company's total earnings and is calculated by taking revenues and subtracting “all” expenses. This number is found on a company's
income statement and is an important measure of how profitable the company is over a period of time. Often referred to as "the bottom
line“.
5. _____
Amount of proven and probable copper available to be pulled out of our mining assets.
6. _____
A number used to help determine how much shareholders would receive in the event of a company-wide liquidation. The number is
expressed as a percentage, is calculated by dividing total shareholders' equity by total assets of the firm, and it represents the amount of
assets on which shareholders have a residual claim. The figures are taken from the company's balance sheet.
An increase of a company's sales when compared to a previous month, quarter or year's revenue performance.
An increase of a company’s net earnings compared to a previous month, quarter or year.
The portion of a company's profit allocated to each outstanding share of common stock. Calculated as: Net Income – Dividends on
Preferred Stock / Average Outstanding Shares.
B. Cash Flow
G. Revenue
L. Cooper Reserves
C. Growth
H. Net Income
M. Asset
G
F
H
L
I
7. _____
A
F
9. _____
O
10. _____
8. _____
E
Rate of recordable workplace injuries, normalized per 200,000 hours worked.
A. Revenue Growth
F. Operating Income
K. Net Income Growth
B
11. _____
D. Cash
I. Equity Ratio
N. Liquidity
E. TRIR
J. EBITDA
O. EPS
-
1
3,738
2
3
9,068
18,982
4
5
6
7
8
9
10
11
47.77
-
3,738
6,273
18,982
9,068
4,273
18,982
47.77
18,982
22.51
120.50
14,560
29,386
18,982
15,040
4,273
2,527
4.57
2.93
49.55
26.21
69.09
55.97
.65
Google and Reuters
-
-
Retaining Content Over Time
Content Retention
Review
Apply
Teach
15%
Time
40
Accountability Conversations
-
Find a Partner now and:
1. Set up a specific date and time in 30 days to report your
progress on your action plan.
2. Exchange emails
3. Exchange phone numbers
4. Decide who will initiate the call
5. Determine a back-up plan
6. Transfer this information to your
planner or PDA now.
53
Post Course Action Items
-
1. 7 days: Teach one of the principals learned in class today,
to someone in your department.
2. 7 days:
Discuss your action items with your manager in the
next 7 days.
3. 30 days: Read the first 90 pages of:
“What The CEO Wants You to Know“
4. 30 days: Get with your class partner and give an account of
your progress on your action item(s).
Start now:

Build and practice your new business acumen skills.

When making decisions, determine how the outcome will impact Cash, Profit,
Assets, Growth, People…
Building Business Acumen 2 Day Course
-
• Build on your foundation of the 5 drivers model
• Gain greater understanding of FreeportMcMoRan
• Deeper dive into the financials
• Analyze our competitors
• Enhance your business decision making skills
• Develop a greater understanding of our key
strategies
• Understand external realities impacting FCX
Next Course May 9-10 Safford AZ
Learning Objectives
-
 Accurately define pertinent business and financial terminology such as
revenue, cost of goods sold, gross profit, net income, unit costs, etc.
 Demonstrate in a team setting, an understanding of the 5 key drivers
(cash, profit, assets, growth, people), that every business must focus on
and how each driver influences business success.
 Accurately describe the key measures and metrics used to assess
business performance.
 Identify and define each line item on a Basic Profit & Loss statement.
 Articulate to one’s team the importance of business and financial
acumen and how their individual role impacts the business.
-
One final thought…
People will work hard for a paycheck,
harder for a person,
and hardest for a reason.
-
Thank You!
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